Investors will be looking to see if stocks can rally after last week’s volatile sell-off. U.S. large caps remain in a strong bullish uptrend, but the Russell 2000 and several foreign indexes, including the German DAX, slumped to new lows for the year. Moreover, a number of European markets are not far from entering a bear market, which is generally considered losses of 20 percent or more. Since early June, iShares MSCI EMU Index (EZU), a fund tracking eurozone stocks, is down more than 16 percent.
This week is light on economic data. Retail sales for September are released on Wednesday along with producer prices, while industrial production is out on Thursday. Unless there’s a big surprise in these less important data points, the most covered data this week will be earnings releases from blue chip giants.
In the financial sector, Goldman Sachs (GS), Morgan Stanley (MS), Citigroup (C), J.P. Morgan (JPM), Wells Fargo (WFC) and Bank of America (BAC) are set to report. Measured in terms of assets held by these mega banks, these firms comprise the significant portion of the financial sector. Several other financial stocks, ranging from American Express (AXP) to BB&T (BBT), also report.
In technology, giants Google (GOOG), Intel (INTC), IBM and Ebay (EBAY) will announce earnings. Dow giants General Electric (GE), Verizon (VZ) and Johnson &Johnson (JNJ) also report, as will major firms such as Philip Morris International (PM), Netflix (NFLX) and UnitedHeatlhGroup (UNH).
FactSet Research reports the average estimated growth rate for S&P 500 third quarter earnings is 4.5 percent. Telecom and consumer discretionary stocks are expected to report declines compared to the third quarter of 2013. Companies reduced guidance and overall growth is down from the 9 percent expected growth at the beginning of the summer. Over the past few years, these changes in guidance have helped companies to beat their lowered expectations.
Rapid changes in investor sentiment drove the market last week. We continue to believe investors should avoid being influenced by these significant swings and focus on the long-term. It is more difficult during market declines though, since they tend to be rapid and sizable compared to the gains that precede it. Many of the factors behind the recent selling are due to growth concerns in Europe, Japan and China. Domestic shares are being pulled lower in sympathy with global markets, which will produce buying opportunities for the patient and long-term oriented investor.